Start-ups seek safety as tech downturn lingers
Australian venture capital firm Flying Fox Ventures is shifting its focus to decidedly ‘unsexy’ startups, its partners say, as local investors tweak their strategies in the wake of the tech downturn of the past 18 months.
Flying Fox has led a $1.4 million (£750,000) investment round into UK-based accounting start-up Mayday, which founding partner Rachael Neumann said is part of a deliberate bias towards funding ‘boring’ companies that nonetheless have strong demand for their products.
“We are excited about boring businesses right now,” Neumann said. “Mayday is a company built on artificial intelligence and machine learning capabilities, but with what is, let’s just say, a boring application.”
“We like boring businesses right now because they’re necessary, and they are recession-proof and have some protection against macroeconomic headwinds. Companies that fall into this unsexy category become very sexy to us if they’re capital efficient and seeing great growth.”
Flying Fox Ventures partners Rachael Neumann, Bree Kirkham and Kylie Frazer.
The tech bubble of 2021 led to valuations getting overinflated, Neumann said, and too many businesses without sound fundamentals received venture capital funding. The last 18 months has seen technology start-up valuations fall by about 30 per cent on average across the board, with start-ups in cryptocurrency, fintech and edtech among the hardest hit.
The sector has also been plagued by widespread lay-offs, with some 249,000 workers shed by 1100 start-ups globally this year, according to tracking website Layoffs.fyi. That pain has also flowed through to venture capital firms, who are eager to turn their bets into paper profits.
“When money was absolutely free, and it was needing to be thrown around, investors were prone to making two mistakes,” Neumann said.
“One was looking at a niche market and thinking it’s the tip of an iceberg, but it’s actually just a truly niche market. The second mistake was really understanding what is a true pain point for consumers, compared to what is just a thing of convenience.
“Do we need this item in 20 minutes or less, is it truly necessary? And if the pain is not acute, then they’re not going to pay for it. Groceries in 20 minutes or less sounds great, but we probably don’t actually need it.”
